The U.S. Federal Trade Commission (FTC) has voted to issue a proposed rulemaking amending the rules governing Hart-Scott-Rodino (HSR) filings made by parties to a proposed merger. The amendments would (1) codify the informal "pull and refile" process and (2) mandate automatic withdrawal of parties' HSR filings under certain circumstances. The first of these proposed changes is uncontroversial, while the second has already stirred debate among the Commissioners.
Codification of the "Pull and Refile" Process
For more than a decade the FTC's Premerger Notification Office, which handles and sets rules for HSR filings, has informally permitted merging parties to "pull and refile" their HSR filings without paying a new filing fee when certain conditions are met. This practice allows the merging parties to extend the initial 30-day waiting period under the HSR Act by another 30 days in an attempt to avoid receiving a burdensome Request for Additional Information and Documentary Material (Second Request). To keep from paying a new filing fee when pulling and refiling, parties must voluntarily withdraw their current HSR filings, update them with any additional documents and information required to be included with the new filings, and refile new HSR forms within two business days of the withdrawal. The practice has benefited both the reviewing agency and the merging parties. It restarts the initial HSR statutory waiting period, allowing the reviewing agency more time to evaluate the transaction, which often works to avert a Second Request, thus saving the parties the considerable costs (both in dollars and time spent) of responding.
Proposed rules 803.12(A) and 803.12(C) would simply codify the existing informal practice. They document the procedure and conditions for withdrawing and refiling HSR forms without paying an additional filing fee, but they do not alter the existing informal practice in any meaningful way. In this sense, the proposed rules on pulling and refiling are uncontroversial.
Mandatory Withdrawal of HSR in Certain Circumstances
The FTC also proposes to mandate automatic withdrawal of parties' HSR filings in instances where SEC notifications are filed indicating that a specific form of a proposed transaction has been abandoned or terminated. In contrast to the pull and refile rule described above, this second proposed change could have the effect of adding additional burden to parties undertaking transactions involving drawn out negotiations or multiple tender offers.
Under the proposed rule (Rule 803.12(B)), when parties to a transaction file certain required disclosures with the SEC indicating that a transaction has been terminated or that an offer to acquire shares from third parties has expired, their HSR filings would be automatically withdrawn. For example, if the offeror in a tender offer amends its Schedule TO to reflect that the offer has expired, been terminated, or otherwise withdrawn due to its terms and conditions not being met, its HSR filing would consequently be terminated. Similarly, if the parties to a merger agreement file a Form 8-K with the SEC announcing the termination of the agreement, their HSR filings would be automatically withdrawn. In the event of a later revival of the transaction, the parties would be required to submit a new HSR filing and pay a new filing fee.
The Commission's explanation for pegging automatic withdrawals to SEC filings is that, "once these termination disclosures are made with the SEC, the parties' transaction as filed with the Agencies has become hypothetical" and the agencies do not want to be "forced to expend scarce resources on what has become a hypothetical transaction." The Commission goes on to state that "the Agencies have encountered…instances where the parties do not withdraw their filing and continue to move forward with the HSR process, for example, by moving ahead with second request compliance."
This last statement likely references the recent acquisition by Hertz Corporation (Hertz) of Dollar Thrifty Automotive Group, Inc. (Dollar Thrifty), as the FTC's experience with this transaction purportedly was a driving force behind this proposed rule. (Note: Jones Day represented Hertz in that transaction.) During the course of the transaction, Hertz submitted a HSR filing and received a Second Request on the basis of an exchange offer that ultimately expired.
Under the proposed rule, as soon as Hertz's exchange offer expired, so would its HSR filing. Ironically, Hertz (which had maintained its good faith intention to make the acquisition even after its exchange offer expired) ultimately did complete the acquisition and did so pursuant to a consent agreement entered into with the FTC on the basis of its then-still-live HSR filing. Thus, while this transaction may have contributed to the genesis of a proposed rule that purports to save the FTC from wasting resources on "hypothetical" transactions, the Hertz/Dollar Thrifty transaction itself was never hypothetical in the eyes of the acquiring company, nor did the FTC staff treat it as such.
Indeed, in a concurring statement regarding the proposed amendments, the newest FTC Commissioner Joshua Wright refers to the proposed rule as "a solution in search of a problem." Commissioner Wright also notes that he has not "been presented with evidence that any of the over 68,000 transactions notified under the HSR rules have required Commission resources to be allocated to a truly hypothetical transaction" and expresses skepticism that parties would "incur the costs and devot[e] the time and effort associated with antitrust review in the absence of a good faith intent to proceed with their transaction." Presaging the likely complaints from the private antitrust bar and its clients, Commissioner Wright worries that the new rule
[C]ould increase the costs of corporate takeovers and thus distort the market for corporate control. Some companies that had complied with or were attempting to comply with a Second Request, for example, could be forced to restart their antitrust review, leading to significant delays and added expenses. The proposed rules could also create incentives for firms to structure their transactions less efficiently and discourage the use of tender offers. Finally, the proposed new rules will disproportionately burden U.S. public companies.
The Commission will be accepting comments on the proposed amendments to the HSR rules until April 15, 2013.